Solar Downturn Casts a Shadow Over Innovation

Why It Matters

Solar power can’t compete with fossil fuels.

Making solar: A worker at JA Solar, a major manufacturer, inspects a solar panel.

Suntech Power, the large Chinese solar panel maker that filed for bankruptcy last month, isn’t the only solar company teetering on the edge. Almost all of the world’s largest solar panel makers are in danger of going bankrupt within a year, and the downturn is having an impact on innovation.

New solar cell technologies developed at these companies and at startups are stuck on the shelf or in low-volume production while manufacturers put off buying new equipment to make new kinds of solar cells. These companies are focused instead on finding ways to reduce installation costs and making incremental improvements to increase power output of conventional, now commoditized, solar technology.

Incremental improvements to solar cell design and manufacturing, along with an oversupply of solar panels, have lowered solar panel prices to the point that they are now a relatively small part of the total cost of solar power. The cost of installation, “balance of systems” equipment, such as inverters, and financing and permitting costs are well over half of the total now. “A lot of the innovation companies are talking about is less on the solar module side, and more about balance of systems and financing,” says Shyam Mehta, a senior analyst at GTM Research.

For example, Trina Solar in China, one of the world’s largest solar panel makers, recently announced changes to its solar panels that make them thinner, lighter, and easier to install. One change involves making the aluminum frames for its solar panels half a centimeter thinner. It’s also partnered with QBotix, a company that develops low-cost systems for aiming solar panels at the sun throughout the day, a strategy that increases power production without requiring a change to the underlying solar cell technology. Hanwha Solar recently invested in OneRoof Energy, which offers financing options that help lower the cost of solar power and potentially increase the market size by making it cheaper and more convenient for homeowners to install solar panels.

But eventually, companies will need to improve the solar cells themselves if they hope to make solar power compete with fossil fuels. The best way to reduce overall costs significantly is through improved solar cell efficiency, since that can both reduce the cost per watt of solar panels, and also reduce installation costs by reducing the number of solar panels needed.

Major changes that will improve the efficiency of solar cells will be on hold until companies can once again buy equipment and expand production. It could be well over a year before demand catches up with supply; production capacity is currently twice that of expected demand this year.